Showing 1 - 10 of 12
This paper studies how a worsening of the debt overhang distortion on bank lending can explain banking solvency crises that are accompanied by a plunge of bank asset values and by a severe contraction of lending and economic activity. Since the value of bank assets depends on economic prospects,...
Persistent link: https://www.econbiz.de/10010941007
While net settlement systems make more efficient use of liquidity than gross settlement systems, they are known to generate systemic risk. What does that tendency imply for the stability of the payments (or financial) system when the two settlement systems coexist? Do liquidity shortages induce...
Persistent link: https://www.econbiz.de/10009395294
This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to develop a new, hybrid class of models for systemic risk, incorporating the structural characteristics of the fi nancial system and a feedback amplification mechanism. The models explain fi nancial...
Persistent link: https://www.econbiz.de/10009357977
This paper develops a financial stress index for the United States, the Cleveland Financial Stress Index (CFSI), which provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The index is based on daily public-market data collected from four...
Persistent link: https://www.econbiz.de/10009364692
This paper assesses the validity of comparisons between the current financial crisis and past crises in the United States. We highlight aspects of two National Banking Era crises (the Panic of 1873 and the Panic of 1907) that are relevant for comparison with the Panic of 2008. In 1873,...
Persistent link: https://www.econbiz.de/10008598728
In a speech at the Minsky Conference on the State of the U.S. and World Economies, Federal Reserve Bank of Cleveland President and CEO Sandra Pianalto discussed consolidated supervision, an important, but sometimes overlooked, aspect of regulatory reform. She also described the criteria that she...
Persistent link: https://www.econbiz.de/10010725722
President Pianalto discusses the economic outlook and the Federal Reserve’s recent actions, commenting on changes to the financial regulatory system. She makes the case for a new framework for categorizing financial institutions based on the degree of risk they pose to the financial system,...
Persistent link: https://www.econbiz.de/10010725738
We present a simple model of systemic risk and show how each financial institution’s contribution to systemic risk can be measured and priced. An institution’s contribution, denoted systemic expected shortfall (SES), is its propensity to be undercapitalized when the system as a whole is...
Persistent link: https://www.econbiz.de/10008489325
Banks face two moral hazard problems: asset substitution by shareholders (e.g., making risky, negative net present value loans) and managerial rent seeking (e.g., investing in inefficient “pet” projects or simply being lazy and uninnovative). The privately-optimal level of bank leverage is...
Persistent link: https://www.econbiz.de/10008764424
The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. This paper proposes an efficient alternative that combines...
Persistent link: https://www.econbiz.de/10011114914